NU Online News Service, July 15, 12:00 p.m. EDT
CNA Financial Corp. has entered into an agreement with Berkshire Hathaway Inc. to transfer its legacy asbestos and environmental pollution liabilities to Berkshire's National Indemnity Company (NICO).
CNA's Continental Casualty Company and several other insurance subsidiaries will give NICO about $1.6 billion of asbestos and environmental (A&E) pollution liabilities under a retroactive reinsurance agreement with a total limit of $4 billion effective Jan. 1, 2010, according to a company statement.
The move is meant to get CNA out from under legacy issues from claims in the 1970s and 80s, said company spokeswoman Katrina Parker. Exclusions now in policies will keep CNA safe from the risk in the future, but the company would consider it "on a case-by-case" basis if a client needed the coverage, said Ms. Parker.
The transaction will "sharpen [CNA's] focus even further on the execution of strategies to improve and grow our on-going core business," said Thomas F. Motamed, chairman and chief executive officer, in a statement. He called the A&E liabilities a "significant source of uncertainty."
The Chicago-based standard and specialty lines commercial insurer expects to record a $375 million loss as a result of the transaction, but A.M. Best Co. said the move is positive because it "dramatically reduces the uncertainty of its legacy liabilities and virtually eliminates any A&E earnings drag for the foreseeable future."
CNA's financial strength rating of A (Excellent) remains unchanged, A.M. Best said.
As part of the transfer transaction, CNA will pay NICO a reinsurance premium of $2 billion and transfer the right to collect third party reinsurance receivables to NICO, with a net value of $200 million. NICO assumes claims handling and collection from third party reinsurers related to the A&E claims being transferred from CNA.
NICO will also put $2.2 billion into a collateral trust for the CNA companies.
Continental Casualty Co. recorded about $126.1 million in net income in 2009, a drop of 72.6 percent from nearly $459.5 million in income the prior year, according to Highline Data, part of the National Underwriter Company. Net income for the Continental Casualty Group was $16.6 million in 2009 after the group took about a $172.1 million net loss in 2008.
Underwriting income for the group has been in the red the last five years, with an $852 million loss in 2009, according to Highline Data.
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